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Not even free and fair elections can easily solve Malaysia's problems

By Dr John Lee. First published in The Australian.

7 May 2013

It is commonly said that elections in many of Southeast Asia's fledging democracies are sometimes free and other times fair, but never both. The refusal of Malaysian Opposition Leader Anwar Ibrahim to concede defeat in the weekend's general election until allegations of widespread voter fraud are properly investigated will further fuel that perception, and lower expectations that racial divisions in the country will subside.

Ruling coalitions led by the United Malays National Organisation have been in government since the formation of modern-day Malaysia in 1963. There were some hopes that breaking the dominance of UMNO would finally signal that Malaysia is able to start afresh and make the changes needed to fulfil its goal of being one of the few prosperous and harmonious multi-ethnic countries in Asia.

Change always brings promise. But Malaysia's problems are not necessarily due to its choice of leader, or even the party in power. Both Prime Minister Najib Razak and Anwar recognise that the country needs to reform its comprehensive suite of affirmative action policies favouring indigenous Malays in order to achieve further prosperity and social harmony. Najib tried and largely failed to do so in his first term when he assumed power in 2010.

In the lead-up to this election, Anwar frequently spoke about the need to redistribute national wealth based on need rather than race. Affirmative action policies are normally designed to protect minorities. The problem is that winding back decades-old policies that discriminate in favour of the majority are far more difficult to shift.

As any Malaysian (as I once was) will tell you, the 1969 race riots between indigenous Bumiputra Malays, who currently constitute almost 70 percent of the population, and Chinese-Malaysians remains the defining event in the country's history.

The acceleration of economic, cultural, educational and political affirmative action policies from 1971 onwards was an understandable response to the national trauma of the violence during which 196 people died.

Even so, the race riots were largely caused by social-economic racial divisions within the country. Malaysian leaders then could have responded by attempting to move the country away from ideologies and policies that emphasised and entrenched racial differences. Instead, they did the opposite.

The move to improve the lives of indigenous Malays rather than all Malaysians has come at a heavy price. From 1971 to the present day, successive five-year plans drew up pro-Malay affirmative action policies, each going further than the last. Schemes were implemented to reduce Bumiputra (rather than overall) poverty and initiatives were adopted to speed up the redistribution of the country's corporate assets from Chinese and Indian-Malaysians for the benefit of Bumiputras.

Indeed, it is estimated that almost two thirds of Bumiputras who found employment from 1971 to 2000 were in jobs created through affirmative action policies. One legacy became the rise of a Malaysian civil service, which as a proportion of the population is the largest and best paid in Asia. Bumiputras make up more than 95 per cent of the service.

This is important because these are the same officials responsible for conceiving and implementing any government reform proposals.

Another consequence is distortions in the investment climate. For example, firms in key sectors are obliged to reserve at least 30 per cent of their equity for Bumiputras, and many require a Bumiputra business partner for registration. Special categories of bank loans are created exclusively for Malay-owned businesses and all banks are required to earmark at least 20 per cent of all money lent to Bumiputras.

Generous government assistance is provided to Malay businesspeople, including preferential access to contracts, licences, franchises, technical assistance, management training and reduced rent assistance. Businesses with at least one quarter of Malay executives are entitled to a 10 per cent corporate tax deduction.

Preference is given to Malay firms in the lucrative government procurement sectors: a real prize given the size of the government corporate sector as well as the fact that public investment exceeds private investment. Of all government contracts, 95 per cent go to Bumiputras.

Rather than creating a critical mass of dynamic Bumiputra entrepreneurs, Malaysia is plagued by the rise of rent-seeking Bumiputra elites dependent on state largesse and demanding the continuation of affirmative action policies on both sides of politics.

Many of those who should be best placed to drive the country's plan to escape the middle-income trap in which Malaysia finds itself already have voted with their feet. According to the World Bank, more than one million Malaysian citizens (out of a population of about 29 million) live abroad, with 90 per cent ethnic Chinese and much of the remainder ethnic Indians, both traditionally dominating the entrepreneurial and professional classes in the country.

Back to the election, it seems the majority of non-Bumiputra Malaysians who voted put their hopes in the opposition, figuring that any change could hardly be worse. We will now never know.

But an Anwar-led government would have encountered the same entrenched obstacles as Prime Minister Najib will continue to suffer.

Influential Bumiputra groups on both sides of politics - decisive in a country in which they represent the majority ethnicity - mostly wanted a greater share of state largesse for their stakeholders, not the winding back of affirmative action policies.

Unfortunately, even a genuinely free and fair election will not easily solve Malaysia's problems.

Dr John Lee is the Michael Hintze fellow and adjunct associate professor at the Centre for International Security Studies, University of Sydney. He is also a non-resident senior scholar at the Hudson Institute in Washington, DC, and a director of the Kokoda Foundation in Canberra.